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Markets end higher after CPI eases below 6% mark; Nifty 50 above 18,600; rupee dips to 82.80 against dollar

PSU banks continued to extend their gaining spree, while IT stocks finally halted 7-day losing streak. Premium
PSU banks continued to extend their gaining spree, while IT stocks finally halted 7-day losing streak.

  • India's consumer price index (CPI) inflation eased to an 11-month low at 5.88% in November -- merrier than what the market expected at 6.4%. This would be the first time since December last year that CPI inflation has come below RBI's upper tolerance limit of 6%.

Indian markets witnessed a bull run on Tuesday as investors take comfort from inflation data that finally eased under RBI's upper tolerance limit after the tenth consecutive month sparking hopes for a further slowdown in a repo rate hike in forthcoming policies. PSU banks continued to extend their gaining spree, while IT stocks finally halted 7-day losing streak. India's volatility index dipped over 3% as equities rose. However, the Indian rupee breached the 82.80 level against the US dollar tracking feeble Asian currencies ahead of US inflation data and the Federal Reserve's policy outcomes.

Sensex surged by 402.73 points or 0.65% to close at 62,533.30. Meanwhile, Nifty 50 settled at 18,608 higher by 110.85 points or 0.6%.

IT indexes on both BSE and NSE have climbed by over 1.1% each. Nifty PSU Bank skyrocketed over 3.8%, while private banks, financials, auto, and capital goods stocks also recorded notable upside. Overall, Bank Nifty gained nearly 238 points.

Stocks like IndusInd Bank, Bajaj Finance, Infosys, HCL Tech, M&M, TCS, Tech Mahindra, Bajaj Finserve, and Ultratech Cement were top gainers. While Nestle, Tata Steel, Maruti Suzuki, and Titan were among the top bears, however, the downside was at a slower pace due to broad-based buying sentiment.

India's consumer price index (CPI) inflation eased to an 11-month low at 5.88% in November -- merrier than what the market expected at 6.4%. This would be the first time since December last year that CPI inflation has come below RBI's upper tolerance limit of 6%. So far this fiscal, RBI has hiked the repo rate by 225 bps to 6.25% which is at the highest level since August 2018, to tame multi-year high inflation. November inflation reading does stir hopes for a pause or a further slowdown in the rate hike trend by RBI.

Vinod Nair, Head of Research at Geojit Financial Services said, "Underpinned by favourable domestic macro numbers and optimistic global cues, domestic indices belled the day in positive terrain. PSU banks led the rally while IT snapped its losing streak on bargain buying. India’s retail inflation eased sharply to 5.88%, which was within the RBI’s tolerance band. However, the euphoria was partially offset by an unexpected decline in industrial production, which shrank 4% in October. The US inflation figures, which are due before the Fed announcement, will provide an indication of the Fed's policy stance."

Talking about banking stocks, S Ranganathan, Head of Research at LKP securities said, a confluence of factors that include positive tailwinds, under ownership, and investor appetite was clearly visible as the rally percolated even to smaller private sector banks.

Meanwhile, Shrikant Chouhan, Head of Equity Research (Retail), at Kotak Securities said, "Markets were on a firm footing on the back of short covering as retail inflation easing to an 11-month low raised hopes that the rate hike regime could slow down and take a pause going ahead. Also, overnight gains in the US markets further aided the local market sentiment, which had slipped into a range-bound mode over the past few sessions."

On the technical term, Chouhan stated that the market not only reclaimed the 20-day SMA (Simple Moving Average) level but also closed above the same which is broadly positive.

Furthermore, at the interbank forex market, the Indian rupee dropped to end at 82.8050 against the US currency compared to the previous day's closing of 82.53. On Tuesday, Asian currencies including the rupee were performing on a weaker note against the greenback ahead of US November inflation data which could give a clearer understanding of the Fed's rate hike approach in its monetary policy outcomes that is scheduled on Wednesday. The majority are expecting a 50 bps rate hike from the Fed in December policy.

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS said, "We expect the US Fed to increase the benchmark rate by 50bps this week. Any hike lower than 50bps will be taken as positive for risk assets like EM equities, including Indian equities. Even with a 50bps hike, if the Fed Chairman comments that future action of the Fed will be data dependent, then the market will take it positively."

However, Kulkarni also said that if the Fed chair mentions that inflation remains a major risk and the labor market remains tight, with a possibility of a second round impact on inflation from the tight labor market, then the markets might react negatively.

Going forward, on domestic equities Chouhan said, "the bullish candle on daily carts and promising reversal formation is indicating the continuation of an uptrend wave in the near future. The uptrend texture is likely to continue in the near future and 18700-18725 would be the next resistance zone for the bulls. On the other hand, a fresh selloff could be seen only after the dismissal of 18450.

According to Ajit Mishra, VP - of Technical Research, Religare Broking, indications are in the favour of further rebound however a lot would depend upon how the US market reacts to the inflation data. On the index front, Nifty could find a hurdle around 18,750 and the banking index may take a breather around 44,250 levels. Amid the prevailing consolidation, he added, "we reiterate our positive tone and suggest continuing with the “buy on dips" approach."

Also, over the near term, Rupak De, Senior Technical Analyst at LKP Securities sees the Nifty 50 trend may remain sideways, with supports placed at 18,500. Resistances on the higher end can be seen at 18,630/18,700.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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